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Global
IMF SIGNALS STORM CLOUDS - Ahead of a G20 meeting in China, the IMF has said that countries should co-ordinate efforts to ward off global economic headwinds. It called for greater spending by governments to boost demand wherever possible, without stressing the fisc. "Flexibility in the fiscal framework should be used to modify the pace of adjustment in the event of weaker demand growth."
Pointing to the slowing world economy, the IMF said that a new approach would have to be taken to keep the global economy from shrinking further. "A comprehensive approach is needed to reduce over-reliance on monetary policy," it said. "In particular, near-term fiscal policy should be more supportive where appropriate and provided there is fiscal space, especially through investment that boosts both the demand and the supply potential of the economy." (The Guardian, February, 24, 2016)
The Organization for Economic Co-operation and Development, OECD, was even more forthright. It called upon G20 countries to increase investment in infrastructure in a co-operative effort to shore up sinking economies. Low interest rates and mere money creation were no longer enough to keep economies afloat. The OECD's chief economist, Catherine Mann, said: "With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability." (The Guardian, February, 24, 2016)
North America
US GDP - The US economy surprised analysts with a solid 1.0% growth in the fourth quarter of the previous year, slowing from the 2.0% growth posted in the third quarter. Economists had expected a revised number of 0.4%.
US CONSUMER CONFIDENCE - American consumer confidence dipped significantly in February, a report released by the Conference Board reveals. Consumer confidence plunged from 97.8 in January to 92.2 in February. Analysts were expecting a figure of 97.2.Consumers' assessment of present day conditions worsened, while fewer consumers felt that conditions were 'good'. Consumers were pessimistic about labour market conditions, while consumers who felt that business conditions were good also showed a decline. The expectations index decreased to 78.9 in February from 85.3 in the earlier month. Likewise, the consumer sentiment index posted a reading of 91, less than the reading of 92 recorded in January.
Europe
EUROZONE ECONOMIC SENTIMENT - Global economic headwinds and uncertainties weighed heavily on Eurozone economic sentiment which plummeted in February. The economic sentiment index declined to 103.8, the lowest level in eight months, from a revised 105.1 in January. The chief reasons for the decline were the turmoil in the financial markets, the slowdown in China and economic woes in emerging market economies. This has prompted some analysts to predict that the European Central Bank might cut its interest rate by 10 basis points to 0.4%.The ECB could also step up the purchase of assets from EUR 60 billion by another EUR 20, 25 billion every month. The bright spot is the strong growth witnessed in Central and Eastern Europe.
Manufacturing sentiment too took a beating; a possible reflection of the difficult economic conditions faced by many of the Eurozone's trading partners. Industrial confidence dipped to -4.4 in February, from -3.1 in the previous month. This is the lowest level in a year. Services confidence index declined to 10.6 in February from 11.5 in January.
GERMAN EMPLOYMENT - Unemployment in Germany declined in January. Destatis said that the jobless rate was an adjusted 4.3% in January, decreasing from the 4.4% rate witnessed in December. The unemployment rate was 4.8% in January 2015. This meant that compared to 2015, 2, 50,000 people had obtained new jobs, leaving 1.82 million unemployed. In January 2016 alone, 74,000 persons found new jobs.
DEFLATION FEARS - Deflation worries mounted in Europe, ahead of the European Central Bank's monetary policy meeting scheduled for 10th March. Provisional data of the harmonized consumer prices index showed that prices fell unexpectedly by 0.2% in February, after rising 0.3% in January. Economists had forecast an increase of 0.1%. The present decline in prices is the biggest fall since the year ago period.
Core inflation, sans energy and fresh food prices, rose 0.8% in February, less than the 1% gain in January. Services prices increased 1%, while food, tobacco and alcohol prices gained 0.7%.In February, energy prices plunged 8% accelerating from the 5.4% tumble in the previous month.
Asia
AUSTRALIAN CENTRAL BANK - The Australian Central Bank, at its latest monetary policy meeting, left its key cash rate unchanged at 2%, for the ninth successive month. The bank was optimistic about the Australian economy's growth prospects, with inflation remaining within target. Yet analysts think that the economy had slowed down in the fourth quarter of 2015.This could impact future policy decisions.
"Over the period ahead, new information should allow the Board to judge whether the improvement in labor market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand," the bank said in a statement. (RTT News March 1, 2016)
CHINA'S ECONOMY CONTINUES DOWNSLIDE - Concerns over the Chinese economy deepened after manufacturing output saw a big fall in February. Belying analysts' expectations, the Caixin manufacturing Purchasing Managers' Index, PMI, decreased to 48 in February from 48.4 in January, a survey by Markit revealed. This was the lowest reading since September. A score of below 50 shows contraction.
"The index readings for all key categories including output, new orders and employment signaled that conditions worsened, in line with signs that the economy's road to stability remains bumpy," He Fan, chief economist at Caixin Insight Group, said.(RTT News, March, 1, 2016)
The solution was to move ahead with reforms combined with moderate stimulus to prevent the economy from going further downhill, he added. The People's Bank of China reduced its renminbi deposit reserve requirement ratio by 50 basis points.
Businesses indicated that conditions were tough. New work orders witnessed the eighth consecutive month of decline. Job losses increased even as firms, for the ninth month in a row, found sale prices declining. Input costs too sank to their lowest level in eighteen months.
JAPAN MANUFACTURING - The Nikkei PMI index in Japan remained in positive territory in February. The index slowed to 50.1 in February from 50.2 in the previous month. Nevertheless this represents a modest growth in the manufacturing sector. Orders for new work declined while employment increased and purchasing also showed a slight growth.
India
BUDGET 2016 - On February 29, Finance Minister Arun Jaitley presented his third budget. The key takeaways from the budget were the adherence to the 3.5% fiscal deficit target and some schemes to mitigate rural distress following two consecutive droughts. However the minster shot himself in the foot with an ill conceived and electorally damaging move to tax Employee Provident Fund benefits.
INDIA MANUFACTURING GROWTH - In February, the manufacturing sector in India posted a comfortable growth on top of the expansion witnessed in January. The Nikkei Manufacturing Purchasing Managers' Index (PMI) showed a reading of 51.1, equaling the January reading. Any figure above 50 indicates growth.
Increase in new orders, at the fastest pace in four months helped push overall growth. Jobs in the manufacturing sector remained stable, while inflation in input prices continued, albeit weakly. Nevertheless many firms reduced sale prices, a reflection of lower costs and desire for new work.
"Goods producers continue to benefit from lower crude oil prices in global markets, which put a brake on inflationary pressures. In light of these numbers, the RBI has scope to loosen monetary policy to spur the economy," Pollyanna De Lima, Economist at Markit, said. (RTT News, March, 1, 2016)
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